S. Africa Gold Output Lowest in 84 Years

Gold production in South Africa, the world's biggest source of gold, sank to its lowest level since 1922 last year, and will probably fall again this year, reports Bloomberg.

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Gold production declined 7.5 percent to 8.85 million ounces in 2006. That was on top of a 13.1 percent drop the year before, according to Roger Baxter, economist at the Chamber of Mines. Gold output in the country has dropped for all but one of the past 37 years.

"We're expecting a slower rate of decline this year," added Baxter.

South Africa's gold mines are generally mined from deep shafts. As miners tunnel deeper, the cost to extract the gold goes up. Costs to mine gold jumped 12 percent last year to about $420 an ounce, according to the chamber.

"The mines are getting deeper, more complex and costlier to operate, while the grades are declining," Ian Cockerill, chief executive officer of Gold Fields, told Bloomberg. "The drop in production is a natural consequence of ore bodies that are very mature."

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Gold Fields, AngloGold Ashanti, Harmony Gold are the nation's three top producers.

But the depletion of gold supply isn't isolated to South Africa. In addition to South Africa, Australia and the U.S. – second and third in output, respectively – had declining output, according to the latest figures available.

"The survival of the gold industry depends heavily on the replacement of reserves," David Davis, analyst at Credit Suisse Standard Securities and South Africa's top-rated gold analyst according to an annual survey by Financial Mail magazine. "That just hasn't happened fast enough in South Africa, or in the U.S."

In other words, gold miners are going to have to depend on discoveries of new gold deposits in order to increase supply. Otherwise, look for gold prices to skyrocket in the coming years as gold becomes an even rarer metal.

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